NHRA’s Non-profit Status Challenged

UPDATED January 13, 2012

LETTER TO IRS QUESTIONS NHRA TAX STATUS - CompetitionPlus.com – 22 Jan 2011

Letter to IRS – 12 Jan 2011

Forbes article – 21 Jan 2011

If it walks like a duck and talks like a duck …. – Washington Examiner – 21 Jan 2011

NHRA on the IRS radar screen now By Jeff Burk – 21 Jan 2011

“No one should be surprised that someone who felt wronged by the NHRA has taken the step of making the IRS aware of the NHRA and its operation. After all, the NHRA has been run as a dictatorship for more than 50 years, answering to no one and especially not to the so-called NHRA ‘members’…”

Who actually owns the NHRA - nitromater.com

NHRA tax return 2009: The returns are inDrag Racing Online

NHRA ADDS NEW BOARD MEMBERSCompetitionPlus.com – December 10, 2010

About the NHRANHRA

A Possible Solution?

Have one NHRA Board member that is elected by, and represents the Sportsman racers on the board. And make this board member easily accessible to the membership via an e-mail link, dedicated phone number, mailing address, etc. I would also recommend that NHRA dedicate a page on their site for this elected representative to post updates, proposals, etc.

Voting would be limited to those current paid NHRA Sportsman members and be for a 3-year term. – Edwards & Young Racing – [Submitted to NHRA on 25 Jan 2011]

FEEDBACK FRIDAY – LETTER QUESTIONS NHRA TAX STATUS – CompetitionPlus.com – 29 Jan – 2011

1951 NHRA articles of incorporation, 2005 amended articles of incorporation & 2009 annual report - Edwards & Young – 2 Feb 2011

 The original articles of incorporation which were in effect until amended in 2005 stated in part: [emphasis ours]

“…That the specific and primary purpose for which said corporation is organized are as follows:

“To promote safety, sportsmanship and fellowship among hot rod enthusiasts through the organization of clubs and associations which will encourage a mutual exchange of beneficial views and sponsor educational and safety programs to the end that the hot rod sport will be better regulated and will be conducted on higher standards, resulting in its more favorable acceptance by the press and public and in greater benefits to its active participants…”

That entire clause of “mutual exhange of beneficial views” was removed in the 2005 amended articles of incorporation. In fact the 2005 articles look nothing like the founding document.

Section VI, 4 of the amended articles also states:

“The corporation has no members within the meaning of Section 5056 of the California Corporation Law.”

I’ve provided the link above for your information. – Roger Young

JOSH PETERSON PROMOTED TO NHRA VP OF RACING ADMIN. - CompetitionPlus.com – March 3, 2011

“…In addition to retaining all of his current responsibilities and becoming a member of the NHRA Competition Committee, Peterson will assume additional responsibilities with NHRA’s sportsman racing programs.  NHRA’s seven division directors will report directly to Peterson and together will work on strategic planning, member track support and other aspects of divisional racing and operations…”

Looking at NHRA’s 2010  Tax Return by Jeff Burk – January 11, 2012

We’ll be updating this post as events unfold.

 

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About Roger

Driver of our '57 Chev, Vietnam veteran (A Troop, 3/17th Air Cavalry Scout helicopter Line Chief and later Cobra Periodic Inspection team leader), retired ASE rated automotive mechanic. Roger became involved in drag racing during his high school days and after his stint in the Army ran E & F/MP [Modified Production] here in Division 6 before switching to bracket racing when the '57 became obsolete for class racing. He often raced at Puyallup, Kent-Pacific Raceways, Bremerton, Portland & the original Mission, B.C. track.
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10 Responses to NHRA’s Non-profit Status Challenged

  1. avatar Roger Young says:

    This is going to be interesting to say the least! After reading the letter to the IRS from the law firm in D.C., the NHRA Board of Directors may be in big trouble!

    • avatar CHRIS YOUNG says:

      ONLY TIME WILL TELL, BUT MAYBE THE BIG THREE AT NHRA WILL FINALLY FIGURE OUT THAT THEY HAVE TO PAY ATTENTION TO THE RACERS AND NOT JUST THEIR BANK STATEMENT.

      • avatar Roger Young says:

        Chris, the letter to the IRS made mention of supposedly 80,000 “members.” At $69 annually per member – and membership is required to have a permanent number at divisional and national events including participating for bracket points – that works out to about $5.5 MILLION per year! [The actual reported income is around $4-million] Certainly the Sportsman racer is seeing only pennies of that in prize money!

        Of course there is the price of publishing the National Dragster & insurance.

  2. avatar Roger Young says:

    Jeff Burk’s article linked above suggests in the long haul the Sportsman could take it in ths shorts! So what’s new?

    In other areas of this blog I’ve pointed out the recent increase in membership fees and for having a NHRA permanent number. I also pointed out years back you could have a permanent number without being required to be a “member.” Annual membership today is $69 annually PLUS the permanent number fee of $25 annuallly.

    I do disagree with Burk that the NHRA Board of Directors will “not suffer.” It is the responsibility of the BOD to make certain the organization is in compliance with current tax law. They can be held responsible IF they are not in compliance.

    Perhaps I’m getting old, but let the chips fall where they may! It’s been a long time coming in my opinion!

  3. avatar Roger Young says:

    Already on some blogs, there are those that are blaming the law firm for some personal vendetta against NHRA. Making wild claims that this law firm is out to take money from NHRA.

    This is NOT a lawsuit against NHRA by the firm or the individual(s) they represent seeking damages! It is simply a letter citing current NHRA practices, public tax filings, and current tax law REQUESTING that the IRS investigate NHRA’s tax-exempt status.

    Remember, NHRA has denied any wrong doing, so let’s see how this plays out.

  4. avatar Old Man says:

    This may be of interest found on another blog:

    http://www.nitromater.com/nhra/26086-who-actually-owns-nhra.html

    Re: Who actually owns the NHRA

    —————————————————————–

    The NHRA is a 501(c)(6) “business league” non-profit “non-stock” corporation.

    Since it is a non-profit it can not have any private ownership, and it has no shares of stock. Its thus a stand alone entity that owns assets and has to abide by 501(c)(6) rules.

    The NHRA can never be sold as a whole, but assets it owns can be sold as long as the proceeds for the sale are only used to benefit its members in the manner that was described when the organization was founded. For the NHRA, this was basically to enable and encourage safe forms of drag racing.

    When it was originally founded, the original bylaws (the rules that stated how the organization was to be run) clearly stated that members would elect the board of directors for 3 year terms. These board of directors then run the company, and were also responsible for hiring the officers (President, etc.).

    This is the way most “business league” non-profits are expected to run. If the members feel the organization is not working well, through elections they can put new board members in place to make it work better.

    However, in 1981 the NHRA conducted a membership vote that “neutered” the members by removing their ability to elect the board of directors, changing the bylaws so the board members elected themselves.

    This is unfortunately not a good situation as the current board totally controls the NHRA and there is currently no way for members the remove board members (and thus officers as well) if the NHRA is being run poorly.

    However, I believe it may be possible to legally challenge this “neutering” vote that the board conducted in 1981. Under California law any change to membership voting rights in a non-profit organization has to be performed in a very specific manner, and the results of this vote must be documented in a specific manner in the organizations bylaws. Its not clear to me if this voting process and documentation was correctly performed by the NHRA. In addition its generally expected that business league non-profits are ultimately controlled through voting rights by its members and the NHRA may not be able to legally justify removing all members voting rights.

    There are some other issues where the NHRA appears to be out of compliance with 501(c)(6) guidelines and restrictions (and some of this information has come to me recently from an individual who wishes to stay anonymous).

    The NHRA compensation levels for some board members appears to be excessively high for a non-profit organization (although its not surprising given the “closed group” nature of the board).

    As a business league the NHRA is restricted to having primarily “professional” members that can legitimately verify that they are engaged in drag racing as a profitable business, but most NHRA members don’t satisfy this requirement.

    In summary I feel the current “closed group” control of the NHRA is not a good thing as there is no way for members to force a board member or officer to be removed if he is doing a poor job.

    I feel it may be possible to challenge the vote that removed members voting rights, but it would either require a good number of NHRA members to band together to challenge the NHRA as a group or a single (or few) number of members that had fat pockets and were willing to fund a legal battle.
    __________________
    Paul Titchener
    http://www.power-t.com

  5. avatar Roger Young says:

    I have no idea if the IRS will investigate the NHRA or not, but I hope that NHRA now understands that doing business the old way will no longer work with all the blogs and internet traffic of today.

    NHRA also needs to change with the times and be more open with all the membership – especially with the Sportsman racers!

    They can no longer conduct business in the dark and believe that the racers and fans will blindly follow.

    In the 2009 tax return linked above from Drag Racing Online, it is commendable that the staff at NHRA took a 10% salary cut as revenue fell off, but for me the salaries are still too high for some in the organization.

    We’re proposed a solution posted above. It certainly isn’t perfect but it would at least give the Sportsman racers a voice on the BOD.

    In closing, I don’t believe there is a racer in our area that desires that the NHRA fail. With their guidance over 60-years the sport has grown and gained respectability. I’m proud to be a member and only hope for more openness with all the Sportsman racers. They are the backbone of the NHRA and I sometimes feel that has been forgotten in recent years as the sport has focused more and more on the Pro ranks & corporate sponsors. With the links above and my comments, I’ve attempted to give all my fellow racers the big picture.

  6. avatar Old Man says:

    From what I’ve been reading on many of the Sportsman blogs is this: The vast majority of those posting are very frustrated with NHRA, their salaries and the lack of having a voice.

  7. avatar Old Man says:

    It is clear after reading the amended 2005 articles of incorporation that the “members” have absolutely NO rights at all!

    The 1951 articles of incorporation were a guiding light for NHRA for years and led to the rapid growth & respectability of the sport. The 2005 articles have changed the focus to the business angle – for profit if you ask me – and have little in common with the original objectives of NHRA.